Tax ‘relief’ turns costly for ordinary earners

An increase of Tk25,000 in the tax-free income threshold in the last budget has, in effect, pushed up the tax burden on ordinary taxpayers. Amid persistently high inflation and stagnant incomes, anyone with taxable earnings will have to pay more tax in the coming fiscal year than in the previous one. For instance, an employee earning Tk60,000 a month will see an additional deduction of around Tk2,500, while in some cases the overall tax burden may rise by as much as 52 per cent.

This added pressure is expected to further strain household finances. However, the government has taken no initiative to raise the tax-free income threshold in the proposed budget for FY2026–27. As a result, the advance tax structure set by the interim administration will remain in force for the next two years unless revised. Officials at the Finance Ministry and the National Board of Revenue (NBR) confirmed the matter.

In the final budget of the interim government, the tax-free income ceiling stood at Tk350,000, which remains unchanged. A roadmap was, however, outlined for the following years, setting the threshold at Tk375,000 for the 2026–27 and 2027–28 tax years.

Under the revised structure, income exceeding this threshold will be taxed at higher rates. The next Tk300,000 will be taxed at 10 per cent, followed by 15 per cent on the subsequent Tk400,000. Previously, income beyond the Tk350,000 threshold was taxed at 5 per cent on the next Tk100,000 and 10 per cent on the following Tk400,000, with rates increasing gradually for higher slabs.

Analysis shows that a worker earning Tk60,000 per month paid Tk12,000 in tax in the last fiscal year (without rebates). Under the new system, the same income will incur Tk14,500 in tax. Similarly, a Tk70,000 monthly earner will see tax rise from Tk18,167 to Tk 23,167.

Given current market prices, individuals earning below Tk100,000 a month find it difficult to save or invest. Without rebates, a person earning Tk100,000 monthly paid Tk47,500 in tax in the last fiscal year; under the new regime, the amount rises to Tk58,750 despite no change in income. At this income level, taxable annual income stands at Tk866,666.

Taxpayers can receive rebates of up to 3 per cent of taxable income through investments, amounting to about Tk26,000 in this case. Even with maximum rebates, tax payable rises from Tk21,500 in the previous year to Tk32,750 in the coming year—an increase of Tk11,250, or 52.32 per cent. While raising the tax-free threshold is expected to ease the burden, the revised structure effectively does the opposite.

In the proposed FY2026–27 budget, leading business body FBCCI, along with trade groups, professional organisations, journalists, economists and tax lawyers, have called for raising the tax-free income limit to Tk500,000. The tax authorities, however, are reluctant, arguing that such a move would push many individuals out of the tax net and increase fiscal pressure.

Senior officials at the Finance Ministry and NBR, speaking on condition of anonymity, said the interim government had already fixed tax rates for the next two years. “Under the current structure, lower- and middle-income groups may face some hardship. But the government is under pressure to boost revenue to meet expenditure. Increasing the tax-free threshold would shrink the tax base and add to fiscal strain. Higher tax collection, however, ultimately funds subsidies and social programmes that benefit taxpayers,” they said.

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Economists and analysts, however, argue that the global economic situation—exacerbated by conflict in the Middle East—has intensified inflationary pressures in Bangladesh. Although the government initially absorbed fuel price shocks through subsidies, it later raised prices. With inflation already high, economic momentum has slowed. To ensure fairness and protect citizens, they say, the tax-free income threshold should be increased.

Toufiqul Islam Khan, Additional Research Director at the Centre for Policy Dialogue (CPD), said inflationary pressures are likely to persist due to global conditions. “War-driven price hikes and slower economic growth should be factored into the budget. Raising the tax-free threshold would help protect people and strengthen fairness in the system,” he said. He added that while increasing tax collection remains a key challenge—also influenced by IMF pressure—the priority should be curbing tax evasion rather than penalising honest taxpayers.

Echoing similar concerns, Ashraf Hossain Khan, General Secretary of the Dhaka Taxes Bar Association, said raising the tax-free income ceiling to Tk500,000 is now a necessity. “People are already going through a difficult time. Without raising the threshold, marginal taxpayers will suffer, and compliant taxpayers may become discouraged from contributing to the state exchequer,” he warned.

Source: Kaler Kantho